Trends

Cash, Credit or… Cell Phone? Starbucks Launches Mobile Payment App Nationwide

(photo: Starbucks)

How would you like to pay for that latte: cash, card or… phone? After months of testing in certain markets throughout the country, Starbucks (SBUX) announced today the launch of its mobile payment program nationwide. Now, you can pay for your drink using with the Starbucks Mobile Pay App for BlackBerry or iPhone (and iPod Touch) at any of the coffee chain’s nearly 6,800 locations and more than 1,000 Target stores.

Technological advances in the mobile phone space have been nothing short of incredible over the past decade. Major players like Nokia, Research in Motion, Apple, Palm and Motorola continue to push the envelope as more and more people equip themselves with smartphones. At the same time, with the emergence of open development of apps, it seems there’s a smartphone application for just about anything these days. Mobile devices are pushing into gaming, internet browsing, business development, even media.

But the most important and impactful segment that mobile devices have crept into might just be the payments space.

The mobile phone payments space essentially involves activities such as processing payments, transferring money or paying for goods and services via your mobile phone.

Starbucks isn’t the only retailer stepping into the mobile payment space. A few other examples:

1. PayPal has an iPhone app, which allows two iPhone owners to exchange money by simply bumping phones. Also available for Android and BlackBerry phones.

2. Hardware add-ons are being manufactured that allow smartphone users to hook up a credit card scanner to a phone in order to process payments at any time, anywhere. Such capabilities would be very impactful for millions of small businesses. Future phones may have this credit-card processing capability built-in to the actual phone casing.

3. Future developments may allow smartphone owners to load funds onto their phone and then have merchants scan their phone or a barcode in order to purchase items (similar to a debit card). This “Stored Value” approach to payments might take the longest to become common place, but it also might have the most potential to truly change consumer activity.

Making payments, buying consumer goods and transferring money via mobile phones is exciting for some and scary for others. While the benefits and conveniences are clear, there are also some risks associated with this activity.

Pros:

  1. Almost everyone carries their mobile phone with them everywhere they go. Fast, convenient, on-the-go payments and consumer activity require some type of hardware on the person. By integrating payments with a device that is already always on your person, the problem of available hardware is solved.
  2. The technology already exists for mobile payments, whether it is the software of hardware. Standardization is the only thing needed to move this trend rapidly forward.
  3. By enabling payments via your smartphone, you increase your payment options. Within your wallet, you have a number of payment options (cash, credit card, debit card). Why not add one more?

Cons:

  1. Mobile payments will never be as universally accepted as cash. Cash is accepted everywhere, always. It will take a some time for mobile payment options to become normal across the spectrum of consumer activity.
  2. Security concerns will be a focus as mobile phones begin to merge with financial accounts. These concerns can be addressed, however, in a similar fashion as with credit cards.
  3. Moving financial details to a hardware device on your person can also open up some privacy concerns. For example, third parties might be able to read information off your phone.

While there are risks to be hammered out as this technology becomes part of our daily lives, these risks can definitely be addressed and measures can be put in place. It is unlikely that these hurdles will stop this growing trend of mobile payments from moving forward. This begs the question:

Are we moving towards a cashless society?

In many ways, we already are a cashless society. Many young people frequently go about their day-to-day lives without any cash. Payments via mobile phones will only push this trend further and continue to change our behavior. That said, don’t expect cash to completely disappear any time soon. As Emmett Higdon, a senior analyst at Forrester Research and one of the nation’s lead experts on mobile payments says, “It’s going to be decades until we see a fully cashless society. Until then, it looks like you might be able to get by if you forget your wallet at home, but definitely not if you forget your mobile phone.”

Kevin Duffey blogs about personal finance at http://20smoney.com/.

This article was originally published on May  27, 2010 and was updated on January 19, 2011.